“islAmiC Asset mAnAgement Will flOuRisH” BY YOUSUF MOHAMED AL-JAIDA
he global fund management industry underwent a massive shock in 2008 when the financial crisis hit. Both asset managers and their clients, institutions and individuals, suffered declining earnings. One report suggested that in 2008 the number of high net-worth-individuals (HNWIs), defined as those with $1 million or more in investable assets, declined by an estimated 15% to 8.6 million while their wealth declined to $32.8 trillion. In the Middle East, HNWIs declined by an estimated 5.9% and their wealth by over 16%. Now the global economy shows tentative signs of recovery and the asset management industry is beginning to enjoy better times. The annual World Wealth Report for 2010 by CapGemini and Merrill Lynch suggests that in 2009 the number of HNWIs around the world had grown 17% to over 10 million and their wealth had increased nearly 19% to $39 trillion. Consultants McKinsey & Company, identifying a longterm trend, have estimated that asset management revenues in the GCC region will increase by 10-15% annually from 2005 to 2015. A TimE TO divERSify At the same time, GCC investors have been increasingly attracted to invest more at home as economic prospects have improved and as the US and European markets have looked less attractive in the aftermath of both 9/11 and the financial crisis. In addition banks and other investors are now looking to diversify their investment portfolios away from real estate,
which was particularly badly hit in the crisis, into other asset classes. This has also coincided with determined moves by these institutions to grow their activities domestically and internationally. The growing interest from domestic investors coupled with the positive economic prospects for the GCC region as oil and gas prices rise in turn stimulating foreign investment, bodes well for both local and international asset managers which are renewing their interest in developing services in the region. So in this context, it is no surprise that Islamic Banking and
gRowing AppeAl Is it true that asset management is an important and growing segment within the Islamic Finance sector? It certainly is, not only for Muslims but non-Muslims looking at it as an alternative investment type. It provides for a safer investment vehicle so interest in Islamic Finance as an asset class has been growing. A Muslim customer who was presented with two identical products, one Shariah-compliant and one not, would obviously choose the former. Shariah-compliant products are not just popular in the GCC, but Europe (UK/France) also. Which organisations within QFC are focused on Islamic Finance? Within the QFC, there are several firms operating under Islamic principles. In particular, Samba, Rayan Investments, Qatar First
Investment Bank and Qinvest are all examples of firms who are offering products of a high quality in Islamic Finance. How have the turbulent economic conditions since 2008 affected QFCA’s way of doing business? We’re fortunate to be based in Qatar so the impact hasn’t been as great, especially with such a proactive government - they bought portions of the real estate and equity portfolios of all QCB banks that wished to participate; more to provide a signal that things would remain stable. It was never an apocalyptic scenario. With international firms looking to expand here becoming more cautious and reticent, this perhaps showed as a slowdown also. The general buoyancy and growth in the country counterbalanced things in this regard.
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Finance, with its prudent approach to the latter, is now also enjoying a boost. Deloitte’s Islamic Finance Knowledge Centre estimates that the demand for Islamic financial services will continue to grow between 15-20% per annum. Not only is the number of institutions offering Islamic financial products and services growing, but so too are the number and variety of products and services. The asset management sector forms a small part of the $1trillion Islamic finance market, giving ample room for fund managers to tap the growing potential of the sector. In a recent report, Ernst & Young estimated the size of the Islamic asset management industry at about $52 billion, comprising a little over 5% of the entire industry. WEATHERinG THE STORm Qatar has weathered the financial crisis particularly well and is reaping the rewards of a long-term investment approach to the development of Liquefied Natural Gas. The Qatar Financial Centre (QFC), set up in 2005 to attract financial services organisations and offering a legal and regulatory environment modelled on global best practice, has identified asset management, alongside reinsurance and captive insurance, as one of its major potential growth areas capitalising on an uniquely sustainable platform. The QFCA provides a low tax regime, allows 100% ownership and repatriation of all profits, whilst all in an onshore trading environment. It has already enjoyed success licensing over 120 organisations including major international players such as AXA Investment Managers and Deutsche Bank. In 2009 Qatar First Investment Bank (QFIB) was launched, becoming the first non-affiliated Shariah-compliant investment bank to be regulated by the Qatar Financial Centre Regulatory Authority.
Recently the QFC has made more specific proposals to support the growth and extension of the asset management industry within Qatar. These proposals relate to: Allowing authorised firms to operate foreign funds. Establishing a regime for QFC registered retail funds. Allowing foreign funds to be marketed to retail customers. And allowing the independent entity/custodian of a QFC collective investment fund to also perform certain administrative functions for that fund. The combination of Qatar’s fast growing economy, increasing wealth and a robust regulatory environment together with the growing demand for Islamic investment products has very recently persuaded Qatar First Investment Bank and specialist regional asset manager Gulfmena Alternative Investments to plan to set up a Shariah-compliant asset management firm. The firm, which will have its own Shariah supervisory board, will cater to qualified investors such as Islamic banks, foundations and charitable organisations and will seek to be regulated by the Qatar Financial Centre Regulatory Authority after being set up initially as a temporary offshore organisation. It is the QFC Authority’s goal to build a world class financial services marketplace where all participants, both domestic and international, will benefit from the considerable local market potential which they can use not only as a springboard into other countries in the GCC, but also as a powerful regional base from which to tap into the broader growth markets of the Middle East, north and sub-Saharan Africa and the Indian subcontinent. Asset management, and specifically within that Islamic asset management, is forecast to further flourish n
(The writer is the Director - Strategic Development (Banking & Asset Management), Qatar Financial Centre Authority)
Q & A With StePhen cArriere, heAD oF MArketinG AnD corPorAte coMMUnicAtionS, QAtAr FinAnciAL centre AUthority (QFcA). What would you see as the main reason people would look to an Islamic Finance product? Traditionally these types of product are concurrent with the Muslim faith. For non-Muslims, Islamic Finance viewed as a more conservative investment vehicle – something seen as more ‘moral’ perhaps. What is QFCA’s goal for the future? Which sectors will it focusing on? Our goal is to continue to develop the financial services sector through: Asset management Reinsurance Captive insurance We are trying to build a pre-eminent hub in the GCC in these
three subsets. We feel that this is certainly realistic - but it’s not going to happen tomorrow. Where will Qatar be in five years’ time as a hub for Shariahcompliant investment business? That’s something which will not be driven at a governmental level, it will need to be driven at a market level. We are trying to ensure that the infrastructure is in place to help financial businesses grow and thrive - If that means regular (i.e. non-Shariahcompliant) products taking centre stage, then so be it. Do you co-ordinate with other Islamic Finance hubs (such as Malaysia) for the discussion of ‘best practice’? We try to co-ordinate with all hubs and leverage the good work done within the different jurisdictions. Special feature on Islamic Banking
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